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Should You Max Out Your Basic Healthcare Sum in Your CPF MediSave Account

Being able to pay for your medical bills is a major concern after retirement. In Singapore, the government advises saving for such expenses in your MediSave Account, up to the Basic Healthcare Sum (BHS).

But what does this sum even mean? And is it worth hitting? We explore what the BHS can offer you.

A sum that’s not that basic

It can be easy to confuse the Basic Healthcare Sum with another of the Central Provident Fund’s (CPF) terminologies – the Basic Retirement Sum. Though the terms sound similar, they actually describe vastly different requirements.

While the Basic Retirement Sum is true to its label – the sum you’d need to put aside is lower than its alternatives, the “Full” and “Enhanced” Retirement Sums – “Basic” is somewhat of a misnomer when it comes to the Healthcare Sum.

The BHS actually describes the maximum savings that you can set aside in your MediSave Account. You can then use your MediSave funds to pay for subsidised healthcare expenses, and health and long-term care insurance, among others.

On the rise until 65

The CPF Board sets the BHS based on trends in how people are using their MediSave funds, particularly after retirement. This sum is updated every year to reflect increases in spending, which are partly due to inflation. Once you turn 65, however, the sum is fixed for you at that year’s BHS amount.

For example, for those who turn 65 in 2022, their BHS is set at S$66,000, and will remain this figure for the rest of their lives.

However, if you are below 65 in 2022, while your BHS is also S$66,000, you can expect it to increase yearly beyond this amount.

Outcome of maxing out your Basic Healthcare Sum

What all this means for Singapore Citizens and Permanent Residents, is that they can save up to a maximum amount in their MediSave Accounts as specified by the BHS. When the sum gets raised each year, they can choose to top up their accounts to meet the new BHS.

Meeting the BHS is not compulsory, and whether or not you fulfil it will not affect your retirement payouts, unlike the Basic Retirement Sum. Fulfilling it simply means the peace of mind of knowing that you should have enough in your MediSave Account to cover your major healthcare costs.

Read more: Saving for Retirement: Raised CPF Basic Retirement Sum & What It Means for Millennials & Gen Zs

Once you’ve reached the current BHS, any excess funds will be transferred to your other CPF accounts. If you are below 55 years of age, the surplus will go into your Special Account until it hits the Full Retirement Sum, following which the money will be channelled into your Ordinary Account.

If you are 55 years old and above, surplus savings will go into your Retirement Account. If that hits your Basic Retirement Sum or Full Retirement Sum (depending on whichever is applicable), the funds will then go into your Ordinary Account.

Benefits of hitting the Basic Healthcare Sum

Ideally, as you incrementally save for your healthcare needs, aiming for the BHS each year, you’ll easily be able to reach your fixed BHS when you retire at 65. What’s more, the healthy compounding interest rate of 4% for your MediSave Account, can help you grow your savings towards the eventual fixed sum.

You’ll then be assured that your healthcare costs in retirement should be decently covered by what you’ve set aside. You can view the BHS as a benchmark of sorts, to assess whether what you’ve saved for these needs is sufficient based on how others have been spending their MediSave funds.

Another benefit of topping up towards your BHS is the tax relief that you can get for voluntary contributions to your MediSave Account.

Read more: MediShield Life Explained

Drawbacks of hitting the Basic Healthcare Sum

On the other hand, maxing out your BHS may not be that important if you have investments or other income sources to cover your healthcare costs when you retire.

In a sense, the BHS is just a “guideline” to indicate how much you should be aiming to set aside. Hitting the amount doesn’t result in any concrete benefits, so it’s possible that you may want to allocate some funds to other, more immediate needs, and maintain a lower MediSave total.

Bear in mind too, that not all medical costs can be covered by MediSave. It’s useful mainly for covering hospitalisation and surgeries in public hospitals, and health insurance schemes offered by the CPF Board. But additional coverage, such as through Integrated Shield Plans and Riders, will require partial, and sometimes full, payment through cash.

Pro tip: Compare the available Integrated Shield Plans and learn which is best for specific needs

You may additionally want to consider critical illness insurance that can provide lump sum payouts that afford you flexibility in covering your daily expenses. Such plans would also require cash payment.

Conclusion

At the end of the day, the Basic Healthcare Sum serves as a reliable guide for how much you should target to set aside in your MediSave Account in order to cover major healthcare expenditure. Especially as you approach retirement, each year’s updated BHS can help you assess whether you need to ramp up your MediSave savings.

Nonetheless, as MediSave only covers certain major healthcare expenses and not all, you should also set aside sufficient cash to fund other costs. And if you have more immediate needs to finance, hitting the BHS may not be as urgent a priority.

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